Just a couple of weeks ago apparel retailers (Gap [GPS], Buckle [BKE], etc.) flooded the newsfeeds with earnings announcements followed by last week’s big banks' earnings announcements.
1. Big financial companies: sales growth numbers announcement. The Wall Street Journal had this informative comparison table for these big U.S. banks.
From these data alone, one would suspect that Wells Fargo (WFC, Financial), after announcing its growth in sales in April 14, must have been rewarded by Mr. Market by now. Wells Fargo was the only big bank that was able to provide actual growth in its revenue.
On the other hand, both Morgan Stanley (MS, Financial) and Goldman Sachs (GS, Financial) should have been severely punished secondary to demonstrating such an incredible plunge in revenue growth; the companies had 50% and 60% profit plummets. Nevertheless, the following table demonstrated some share prices action since the financials earnings announcement (April 20).
Goldman Sachs had the worst year-on-year revenue growth in the group, yet its shares rose post-announcement by 5.3%. Actually, both poor growth exhibitors, Morgan Stanley and Goldman Sachs, were much more appreciated by Mr. Market than the outperforming Wells Fargo.
2. Chipmakers:Ă‚ Qualcomm (QCOM, Financial) and Intel (INTC, Financial).
Determining how Mr. Market reacted to Qualcomm may be a bit premature as the company just announced its quarterly numbers. But Intel has had a day to see how Mr. Market reacted to its earnings announcement.
Intel, the largest PC chipmaker, demonstrated year-on-year growth of 8% in its sales. On the other hand, Qualcomm had a whopping 20% loss in profits from a year earlier. Qualcomm is more known for its mobile chip business in contrast to Intel, which is more involved in providing personal computer chips.
These percentage change returns appeared more rational than what happened earlier with the financial stocks. Observing Qualcomm in the next few weeks will be interesting.
3. Random but widely discussed companies: American Express (AXP, Financial) and Las Vegas Sands (LVS, Financial).
Warren Buffett (Trades, Portfolio)’s fifth-largest holding, American Express, reported its earnings along with the world’s largest casino operator, Las Vegas Sands. Las Vegas Sands had been losing its sales secondary to the ongoing corruption crackdown and economic slowdown that has been happening in China since 2015.
As a result, Mr. Market instantaneously rewarded American Express with this 1.9% growth number and punished the casino operator accordingly.
Although some rationality existed recently, one outstanding Mr. Market reaction can be observed in how it treated Netflix’s (NFLX, Financial) shares post-earnings announcement.
Mr. Market hated Netflix shares, imposing a 10% loss since the earnings announcement. This happened despite the company announcing outstanding 24.8% growth compared to last year’s revenue numbers.
Nevertheless, looking at sales growth numbers and Mr. Market’s reaction would have been confusing and discouraging to a conservative investor. Regardless of what a company’s quarterly performance indicates, one should form his own method for valuation and company assessment to determine whether a share in a certain company would indicate a bargain and also an opportunity for a long-term investment.
Some more numbers
Currently, the traditional price-to-book valuation for financial stocks revealed that Bank of America (BAC, Financial) exhibited the most discounted valuation to its assets at $14.94 per share. Nevertheless, there are several things to consider before buying into its shares, such as the 7% revenue loss from last year and the approximately $21 billion of loans to the struggling energy companies.
Meanwhile, Standard & Poor's 500 is at a nine-month high:
"In the short run, the market is like a voting machine –Â tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine." –Â Benjamin Graham
Happy investing.
